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Well, CBA has been criticized on several aspects. I am pleased to share some of my recent papers (WPS) on CBA/BCA and Investment Analysis. All these four papers provide better insight into the analysis:
1. A New Method to Estimate IRR and NPV and NPV is not an Appropriate Criterion: https://papers.ssrn.com/abstract=2899648
2. IRR Performs Better than NPV: A Critical Analysis of Multiple IRR and Mutually Exclusive Investments: https://papers.ssrn.com/abstract=2913905
3. The Controversial Reinvestment Assumption in CBA and Capital Investment Analysis: https://papers.ssrn.com/abstract=2918744
4. MIRR is a Spurious criterion and should not be used in cost-benefit analysis and investment analysis http://ssrn.com/abstract=2942456
A summary of the findings follows:
a. A new method is introduced to estimate NPV and IRR from the Capital Amortization Schedule (CAS). The new method is more transparent and explain better the NPV and IRR.
b. The new method exposes that the NPV is the unutilized net cash flow (NCF) and if fully utilized it will become zero at a discount rate equal to IRR. NPV is not a good criterion as it indicate incomplete information on return of capital (ROC) and the return on invested capital (ROIC).
c. IRR is most appropriate to select and rank mutually exclusive investments as explained in the paper listed two.
d. Paper 3 provides evidence that reinvestment of intermediate income in the estimation of IRR is a fallacy and therefore IRR remains as the best criterion. This is again reinforced by the results from paper 1 listed above.
e. MIRR is a spurious criterion because it assumes reinvestment (which is a fallacy) and MIRR also cannot solve the problem of multiple IRR as presumed. MIRR estimate is boundless with increasing investment rate (IR). MIRR is based on modified NCF (MNCF) and the MNCF distorts the cash flow and the results as explained in the paper no; 4 listed above.
Based on these analytical evidence, Investment analysts and decision makers may wish to move away from the conventional wisdom of preferring NPV and using MIRR as a criterion so also the authors of all published works and finance and economic texts.
Appreciate comments.
Regards
Dr Kannapiran Arjunan, Brisbane, Australia